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EMV In The U.S. Worth Considering
February 17
As European and Chinese payment card issuers steadily move to support EMV-only cards that lack a magnetic stripe to conduct transactions, global competitive pressure may force the U.S. to adopt EMV chip-and-PIN technology, a top exec from a major international card manufacturer contends.
“Various new developments suggest that beginning next year, significant European merchants will begin to block magnetic stripe transactions such as those from U.S. cardholders, and it will be increasingly difficult for European travelers to use their cards to conduct transactions in the U.S.,” Jack Jania, U.S. vice president and general manager of secure transactions at chip card maker Gemalto NV, tells PaymentsSource. “This is going to put global competitive pressure on U.S. merchants and also on issuers abroad.”
No mandate yet exists for the U.S. to adopt EMV technology, but such a mandate could emerge from one of three directions, Jania believes.
“We could see a mandate to adopt EMV come from the card brands, as has happened in Canada and other countries; or the Federal Reserve, which we know is researching the issues surrounding EMV; or possibly from the new Consumer Financial Protection Bureau, which has the mission of looking out for cardholders’ rights,” Jania says.
The U.S., which remains the only major market to stay with mag-stripe card technology while most countries have moved to EMV, has balked for a number of reasons, including cost projections ranging from $5 billion to $13 billion and the country’s relatively low card-fraud levels (
But the drumbeat for the U.S. to adopt EMV continues to intensify. Among the new developments that could put further pressure on the U.S. is momentum from European regulators, which are looking to give card issuers within the Single Euro Payments Area the green light to eliminate legacy mag-stripes from newly issued cards, Jania says.
The European Payments Council in its January newsletter said it expects card issuers within SEPA to gain permission as early as 2012 to issue chip-only cards and to refuse mag-stripe transactions.
That announcement falls in line with the European Central Bank’s recommendation in an October SEPA progress report stating that beginning next year all newly issued SEPA cards should be chip-only to prevent fraud. Issuers may include a mag-stripe on new payment cards as a fallback to enable ATM withdrawals, but they should remove any data enabling mag-stripe purchase transactions, according to the central bank.
“The industry will have to be prepared to offer the cardholder cards with legacy magnetic stripes upon request as long as there are still regions outside SEPA which have not fully migrated to EMV,” the central bank’s report said.
Singling out certain cardholders who would receive cards equipped with a mag-stripe for transactions would be costly to issuers, and few issuers likely would pursue such an approach, Jania warns.
China also has announced that by 2015 it will eliminate mag-stripes on transactions cards, Jania notes.
“We see that within two to four years, two of the largest transactional partners of the U.S. will no longer support the U.S.’s primary transaction card technology, which could have a significant negative potential impact on U.S. merchants, not to mention the higher risk of fraud the U.S. would be exposed to with a lower-tech, less-secure technology,” Jania says.
EMV provides an additional layer of security for point-of-sale transactions by requiring a PIN for authorization. It does not protect against card-not-present fraud, but EMV and contactless card technology blocks certain types of card-cloning crimes commonly committed using mag-stripe technology.
In a “mature” chip-and-PIN environment, EMV technology effectively prevents fraud in face-to-face payments and represents “major financial and operational cost-saving” to banks, the European Payments Council noted in a January report.
For the 32 European countries within SEPA as of Sept. 30, 95% of their merchant payment terminals and ATMs were EMV-compliant, and 79% of issuers had migrated to EMV-compliant cards, the council said.
“Fraud is migrating rapidly to points of least resistance,” including to countries whose cards are based on mag-stripe technology vulnerable to card-skimming, leading to counterfeiting, the report said.
As more countries adopt EMV, Gemalto is seeing “increasing demand for dual-interface cards that can handle both EMV and secure-contactless transactions,” Jania says. “As Europe and China pull away from magnetic stripe cards, it could drive greater worldwide deployment of dual-interface cards, including in the U.S., which would go a long way toward preventing fraud.”
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